one in five homes worth less than mortgage

Almost 1 in 5 U.S. homes worth less than mortgage: report
Last Updated: Friday, October 31, 2008
Reuters, special to CBC News

Nearly one in five U.S. mortgage borrowers owe more to lenders than their homes are worth, and the rate may soon approach one in four as housing prices fall and the economy weakens, a report on Friday indicates.

About 7.63 million residential properties, or 18 per cent, had negative equity in September, and another 2.1 million will follow if home prices fall another five per cent, according to a report by First American CoreLogic.

The data, covering 43 states and Washington, D.C., includes borrowers nationwide, even those who took out mortgages before housing prices began to soar early this decade.

Seven hard-hit states â?? Arizona, California, Florida, Georgia, Michigan, Nevada and Ohio â?? had 64 per cent of all "underwater" borrowers, but just 41 per cent of U.S. mortgages.

This is very much a regional problem, and people tend to forget that," said David Wyss, chief economist at Standard & Poor's, who expects home prices nationwide to fall another 10 per cent before bottoming late next year.

"Most of the country is not in bad shape," he continued. "Things seem to be stabilizing in Michigan, but the big bubble states â?? Florida, California, Arizona and Nevada â?? are still very overpriced."

About 68 per cent of U.S. adults own their own homes, and about two-thirds of them have mortgages.

JPMorgan Chase & Co, one of the biggest mortgage lenders, Friday offered to modify $70 billion US of mortgages to keep a potential 400,000 homeowners out of foreclosure. Bank of America Corp., which bought Countrywide Financial Corp in July, also has a large loan-modification program.

Home prices, economy under pressure

U.S. home prices fell a record 16.6 per cent in August from a year earlier, with declines in all 20 major metropolitan areas measured by the S&P/Case-Shiller Home Price Indices.

Foreclosure filings rose 71 per cent in the third quarter to a record 765,558, according to RealtyTrac.

Meanwhile, the Commerce Department said gross domestic product fell at a 0.3 per cent rate in the third quarter. Some experts expect the worst U.S. recession since the early 1980s.

Yet despite a series of expensive government programs to spur lending, mortgage rates are rising, making it tougher to borrow or refinance. The rate on a 30-year, fixed-rate mortgage jumped this week to 6.46 per cent from 6.04 per cent a week earlier, Freddie Mac said.

Borrowing costs on hundreds of thousands of adjustable-rate mortgages are expected to reset higher in the coming months. The problem may be particularly serious for borrowers with rates tied to the London Interbank Offered Rate, or Libor, which is abnormally high relative to benchmark U.S. rates.

as a general rule mortgage paid to fully own the property is always greater than book value of the property, why? there is interest %age involved

but in some cases, property markets boom and make your asset worth more than mortgage+interest paid in full

and in this case, the market is totally ruining any such hopes

Quote:

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Originally Posted by flyingimam

as a general rule mortgage paid to fully own the property is always greater than book value of the property, why? there is interest %age involved

but in some cases, property markets boom and make your asset worth more than mortgage+interest paid in full

and in this case, the market is totally ruining any such hopes

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What they mean when they say a mortgage is underwater is that they owe more principal than the home is worth. So you have a 200,000 dollar mortgage with an eventual 30,000 in interest. Your home loses 20% of its value...going down to 160,000 while you still owe 180,000 in principal and 25,000 in interest.

if you add mortgage interest into the equation, you should deduct the cost of rent you saved by buying over the life of the mortgage...i was paying $1750 per month to rent a house when mortgage rates were 4%...it would have been profitable for me to buy a $750,000 house and pay the interest on the mortgage for 20 years even if the house didn't increase in value (roughly estimating and ignoring inflation)

The US real estate market has been very sluggish in its contraction mostly due to people who have unrealistic or intrinsic values associated with their asking price. Much of those heavy hit areas have residents who refuse to face the facts, and houses are going to have to be sold for less than what they are willing to sell at this point to ensure a quick and meaningful rebound.

That means it could take time:stoned: